Energy Market Updates

If there is one thing that I am sure of in all my years in this Industry it is that Customers do not like surprises. 

The last two weeks (or two years for that matter!) have certainly offered up many surprises.  News over the last three days has highlighted “Crude prices falling”, however, the disconnect from Crude pricing to the finished diesel product pricing has never been more sharply contrasted. Front month Diesel futures have once again skyrocketed $.80 to touch the $4.00 level in the last two weeks for the fifth time.  The rapid rise and rapid drop cycle doesn’t seem to be ending anytime soon. 

Volatility continues to have a hold on the diesel market.  In the past week alone, we have dropped over $.30 and subsequently rose $.30 in just four sessions. 

If you were to read the news, it is almost impossible to tell which way the Oil markets are going as the volatility has all pits in wild daily swings.  Fortunately for most of us, diesel prices have corrected over $.30 in the last three days and all but erased the early August climb. 

In the last 6 sessions we have seen ULSD futures slide just over $.50 in value.  While this is good news, the previous 6 sessions added just about the same amount. So basically we are back to the same levels we were mid-August where we all felt pretty positive pricing was moving in the right direction. Much of the rise can be attributed to money being put into the market as an inflation hedge as rates continue to rise, though it is tough to keep that money in long term with the ever present backwardation. 

The past two weeks has seen ULSD rise, and subsequently fall almost $.20 on the front month.  Much of the dip in the last few days came as market players were able to digest some of the details in the 785 page Inflation Reduction Act which appears to moving its way through.  One piece which many believe will have the most impact on futures is that the bill revives lease sales canceled or delayed by President Biden including: one in Alaska’s Cook Inlet  and three in the Gulf of Mexico.  This section also appears to require the Biden Administration to adopt Trump era directives for 2022 oil and gas leasing established.

With Friday and Mondays' sessions cutting into the recent losses on ULSD by about $.35, it’s important to keep in mind the trend is still your friend. With early morning action seeing ULSD down $.08, we are still down over $.80 in the last few weeks. 

In just over two weeks time, front month ULSD is down $1.00, with over $.50 coming in the last two sessions alone. 

Over the last 2 weeks front month ULSD has risen almost $.80  in futures trading,  but it looks like the driver of the run up maybe that crazy cousin RBOB.  Gasoline typically rises this time of year but many thought this year would be different.  Sky high retail prices and massive inflation concerns were thought to put a dent on demand.  However, this weeks inventory report showed a surprise draw in gasoline stocks and strong demand numbers.  It may be a holiday weekend anomaly, but Americans appear to be taking it all in stride, thus giving buyers no reason not to keep buying. 

Diesel prices remain the talk of the table as they have shed over $1.00 in the last 15 days.  Spot cash prices which at one point in early May were $1.25 over futures have since retraced to be roughly $.20 over.   Still, by way of comparison, high to the first quarter of the year where they were pegged mostly flat  to the screen.   (see below). 

There is a fair amount of news on the lack of diesel available in the northeast, and it is actually true. Last week’s DOE report showed that PADD 1 (East Coast) had 95mbls of diesel, that is down from 123mbls last year and 142mbls from 2 years ago. 

The question is why?